Goldman Sachs takes aim at Senate report

Goldman Sachs claims the Senate subcommittee's characterization of its subprime business was “sloppy and incomplete.” (Photo Credit: CC BY/Ludovic Bertron/Flickr)

Goldman Sachs Group Inc., the securities firm Sen. Carl Levin, D-Mich., once described as a “financial snake pit, rife with greed, conflicts of interest and wrongdoing,” is preparing to strike back. The Wall Street Journal reports that the firm plans to counter the Senate’s financial crisis subcommittee’s 639-page report, which alleges that Goldman Sachs sought to profit by betting against the housing market and betraying its clients. Reports indicate that Goldman’s defense will focus on what the company believes to be “sloppy math” on the part of federal regulators.

‘Sloppy math and incomplete analysis’

The Senate Permanent Subcommittee on Investigations went through tens of millions of documents disclosed by Goldman Sachs, yet the securities firm says in its defense that the Senate’s analysis was incomplete. Goldman Sachs has not denied that the firm profited from the subprime mortgage crisis as prices fell and borrowers defaulted, creating the big short. However, the firm believes data suggest the Senate’s numbers are inaccurate.

One document the Senate found particularly damning for Goldman Sachs was a chart that characterized the company’s net short positions against the housing market being as high as $13.9 billion on June 25, 2007. Goldman says that number appears artificially large when juxtaposed against the 2007 net revenue of $11.6 billion the Senate reported. Goldman claims its actual net revenue was $46 billion.

Insider trading, truthful and accurate

The WSJ reports that Goldman Sachs will use data on bullish mortgage trades to temper the opportunistic venom behind such numbers, data to which the Senate already had access but chose not to highlight in its report. Goldman argues that billions of dollars in bullish trades – as well as more than $5 billion invested in prime mortgage bonds – more than offset the subprime short bets.

Despite the fact that former Goldman Sachs corporate board member Rajat Gupta backed away from his position following allegations of insider trading, the firm maintains that its dealings with the U.S. government have been “truthful and accurate,” according to a company representative for CEO Lloyd Blankfein.